# EUR-Lex - 12003T/PRO/08 - EN

Important legal notice

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# 12003T/PRO/08

**Act concerning the conditions of accession of the Czech Republic, the Republic of Estonia, the Republic of Cyprus, the Republic of Latvia, the Republic of Lithuania, the Republic of Hungary, the Republic of Malta, the Republic of Poland, the Republic of Slovenia and the Slovak Republic and the adjustments to the Treaties on which the European Union is founded - Protocol No 8 on the restructuring of the Polish steel industry **

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Official Journal L 236 , 23/09/2003 P. 0948 - 0953 *

Protocol No 8

on the restructuring of the Polish steel industry

1. Notwithstanding Articles 87 and 88 of the EC Treaty, State aid granted by Poland for restructuring purposes to specified parts of the Polish steel industry shall be deemed to be compatible with the common market provided that:

- the period provided for in Article 8(4) of Protocol 2 on ECSC products to the Europe Agreement establishing an association between the European Communities and their Member States, of the one part, and Poland, of the other part [1], has been extended until the date of accession,

- the terms set out in the restructuring plan on the basis of which, the abovementioned Protocol was extended, are adhered to throughout the period 2002-2006,

- the conditions set out in this Protocol are met, and

- no State aid for restructuring is to be paid to the Polish steel industry after the date of accession.

2. Restructuring of the Polish steel sector, as described in the individual business plans of the companies listed in Annex 1, and in line with the conditions set out in this Protocol, shall be completed no later than 31 December 2006 (hereinafter referred to as "the end of the restructuring period").

3. Only companies listed in Annex 1 (hereinafter referred to as "benefiting companies") shall be eligible for State aid in the framework of the Polish steel restructuring programme.

4. A benefiting company may not:

(a) in the case of a merger with a company not included in Annex 1, pass on the benefit of the aid granted to the benefiting company;

(b) take over the assets of any company not included in Annex 1 which is declared bankrupt in the period up to 31 December 2006.

5. Any subsequent privatisation of any of the benefiting companies shall take place on a basis that respects the need for transparency and shall respect the conditions and principles regarding viability, state aids and capacity reduction defined in this Protocol. No further State aid shall be granted as part of the sale of any company or individual assets.

6. The restructuring aid granted to the benefiting companies shall be determined by the justifications set out in the approved Polish steel restructuring plan and individual business plans as approved by the Council. But in any case the aid paid out in the period of 1997-2003 and in its total amount shall not exceed PLN 3387070000.

Of this total figure,

- as regards Polskie Huty Stali (hereinafter referred to as "PHS"), the restructuring aid already granted or to be granted since 1997 until the end of 2003 shall not exceed PLN 3140360000. PHS has already received PLN 62360000 of restructuring aid in the period 1997-2001; it shall receive further restructuring aid of no more than PLN 3078000000 in 2002 and 2003 depending on the requirements set out in the approved restructuring plan (to be entirely paid out in 2002 if the extension of the grace period under Protocol 2 of the Europe Agreement is granted by the end of 2002, or otherwise in 2003);

- as regards Huta Andrzej S.A., Huta Bankowa Sp. z o.o., Huta Batory S.A., Huta Buczek S.A., Huta L.W. Sp. z o.o., Huta Łabędy S.A., and Huta Pokój S.A. (hereinafter referred to as "other benefiting companies"), the steel restructuring aid already granted or to be granted from 1997 until the end of 2003 shall not exceed PLN 246710000. These firms have already received PLN 37160000 of restructuring aid in the period 1997-2001; they will receive further restructuring aid of no more than PLN 210210000 depending on the requirements set out in the approved restructuring plan (of which PLN 182170000 in 2002 and PLN 27380000 in 2003 if the extension of the grace period under Protocol 2 of the Europe Agreement is granted by the end of 2002, or otherwise PLN 210210000 in 2003).

No further State aid shall be granted by Poland for restructuring purposes to the Polish steel industry.

7. The net capacity reduction to be achieved by Poland for finished products during the period 1997-2006 shall be a minimum of 1231000 tonnes. This overall amount includes net capacity reductions of at least 715000 tpy in hot rolled products and 716000 tpy in cold rolled products, as well as an increase of at most 200000 tpy of other finished products.

Capacity reduction shall be measured only on the basis of permanent closure of production facilities by physical destruction such that the facilities cannot be restored to service. A declaration of bankruptcy of a steel company shall not qualify as capacity reduction.

The net capacity reductions shown in Annex 2 are minima and actual net capacity reductions to be achieved and the time frame for doing so will be established on the basis of Poland's final restructuring programme and individual business plans under the Europe Agreement, taking into account the objective to ensure the viability of benefiting companies by 31 December 2006.

8. The business plan for the benefiting company PHS shall be implemented. In particular:

(a) restructuring efforts shall concentrate on the following:

- reorganising PHS production facilities on a product basis and ensuring horizontal organisation by function (purchasing, production, sales),

- establishing in PHS a unified management structure enabling full realisation of synergies in the consolidation,

- evolving the strategic focus of PHS from being production oriented to being marketing oriented,

- improving the efficiency and effectiveness of PHS business management and also ensuring better control of direct sales,

- PHS reviewing, on the basis of sound economic considerations, the strategy of spin-off companies and, where appropriate, reintegrating services into the parent company,

- PHS reviewing its product mix, reducing over-capacity on long semi-finished products and generally moving further into the higher value added product market,

- PHS investing in order to achieve a higher quality of finished products; special attention shall be given to attaining by the date set in the timetable for the implementation of the PHS restructuring programme and at the latest by the end of 2006 3-Sigma production quality level at the PHS site in Kraków;

(b) cost savings shall be maximised in PHS during the restructuring period through energy efficiency gains, improved purchasing and ensuring productivity yields comparable to European Union levels;

(c) employment restructuring shall be implemented; levels of productivity comparable to those obtained by EU steel industry product groups shall be reached by 31 December 2006, based on consolidated figures including indirect employment in the wholly owned service companies;

(d) any privatisation shall be on a basis that respects the need for transparency and fully respects the commercial value of PHS. No further State aid shall be granted as part of the sale.

9. The business plan for the other benefiting companies shall be implemented. In particular:

(a) for all of the other benefiting companies, restructuring efforts shall concentrate on the following:

- evolving the strategic focus from being production oriented to being marketing oriented,

- improving the efficiency and effectiveness of the companies' business management and also ensuring better control of direct sales,

- reviewing, on the basis of sound economic considerations, the strategy of spin-off companies and, where appropriate, reintegrating services into the parent companies;

(b) for Huta Bankowa, implementing the cost savings programme;

(c) for Huta Buczek, obtaining the necessary financial support from creditors and local financial institutions and implementing the cost savings programme, including reducing the investment cost by adapting existing production facilities;

(d) for Huta Łabędy, implementing the cost savings programme and reducing reliance on the mining industry;

(e) for Huta Pokój, achieving international productivity standards in the subsidiaries, implementing energy consumption savings and cancelling the proposed investment in the processing and construction department;

(f) for Huta Batory, reaching agreement with creditors and financial institutions on debt rescheduling and investment loans. The company shall also ensure substantial additional cost savings associated with employment restructuring and improved yields;

(g) or Huta Andrzej, securing a stable financial base for its development by negotiating an agreement between the company's current lenders, long-term creditors, trade creditors and financial institutions. Additional investments in the hot tube mill as well as the implementation of the staff reduction programme must take place,

(h) for Huta L.W., carrying out investments in relation to the company's hot rolling mills project, lifting equipment, and environmental standing. This company shall also achieve higher productivity levels, through staff restructuring and reducing the costs of external services.

10. Any subsequent changes in the overall restructuring plan and the individual plans must be agreed by the Commission and, where appropriate, by the Council.

11. The implementation of the restructuring shall take place under conditions of full transparency and on the basis of sound market economy principles.

12. The Commission and the Council shall closely monitor the implementation of the restructuring and the fulfilment of the conditions set out in this Protocol concerning viability, state aid and capacity reductions before and after accession, until the end of the restructuring period, in accordance with paragraphs 13 to 18. For this purpose the Commission shall report to the Council.

13. In addition to the monitoring of State aid, the Commission and the Council shall monitor the restructuring benchmarks set out in Annex 3.

14. Monitoring shall include an independent evaluation to be carried out in 2003, 2004, 2005 and 2006. The Commission's viability test shall be applied and productivity shall be measured as part of the evaluation.

15. Poland shall cooperate fully with all the arrangements for monitoring. In particular:

- Poland shall supply the Commission with 6-monthly reports concerning the restructuring of the benefiting companies, no later than 15 March and 15 September of each year until the end of the restructuring period,

- the first report shall reach the Commission by 15 March 2003 and the last report by 15 March 2007, unless the Commission decides otherwise,

- the reports shall contain all the information necessary to monitor the restructuring process, the State aid and the reduction and use of capacity and shall provide sufficient financial data to allow an assessment to be made of whether the conditions and requirements contained in this Protocol have been fulfilled. The reports shall at the least contain the information set out in Annex 4, which the Commission reserves the right to modify in line with its experiences during the monitoring process. In addition to the individual business reports of the companies listed in Annex 1, there shall also be a report on the overall situation of the Polish steel sector, including recent macroeconomic developments,

- all additional information necessary for the independent evaluation provided for in paragraph 14 must, furthermore, be provided by Poland,

- Poland shall oblige the benefiting companies to disclose all relevant data which might, under other circumstances, be considered as confidential. In its reporting to the Council, the Commission shall ensure that company-specific confidential information is not disclosed.

16. The Commission may at any time decide to mandate an independent consultant to evaluate the monitoring results, undertake any research necessary and report to the Commission and the Council.

17. If the Commission establishes, on the basis of the monitoring, that substantial deviations from the financial data on which the viability assessment has been made have occurred, it may require Poland to take appropriate measures to reinforce or modify the restructuring measures of the benefiting companies concerned.

18. Should the monitoring show that:

(a) the conditions for the transitional arrangements contained in this Protocol have not been fulfilled, or that

(b) the commitments made in the framework of the extension of the period during which Poland may exceptionally grant State support for the restructuring of its steel industry under the Europe Agreement [2] have not been fulfilled, or that

(c) Poland in the course of the restructuring period has granted additional incompatible state aid to the steel industry and to the benefiting companies in particular,

the transitional arrangements contained in this Protocol shall not have effect.

The Commission shall take appropriate steps requiring any company concerned to reimburse any aid granted in breach of the conditions laid down in this Protocol.

[1] OJ L 348, 31.12.1993, p. 2.

[2] OJ L 348, 31.12.1993, p. 2.

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ANNEX 1

COMPANIES BENEFITING FROM STATE AID UNDER THE STEEL RESTRUCTURING PROGRAMME OF POLAND

"Polskie Huty Stali" S.A.

Katowice

Huta Andrzej S.A.

Zawadzkie

Huta Bankowa Sp. z o.o.

Dąbrowa Górnicza,

Huta Batory S.A.

Chorzów

Huta Buczek S.A.

Sosnowiec

Huta L.W. Sp. z o.o.

Warszawa

Huta Łabędy S.A.

Gliwice

Huta Pokój S.A.

Ruda Śląska

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ANNEX 2

TIMETABLE FOR CAPACITY CHANGES (REDUCTIONS AND INCREASES) [1]

Company | Facility | Minimum Capacity change (tpy) | Date of production change | Date of permanent closure |

PHS | Light and medium sections mill, Świętochłowice | −340000 | 1997 | 1997 |

Łabędy | Medium sections mill | −90000 | 2000 | 2000 |

PHS | Galvanising line, Świętochłowice | +100000 | 2000 | — |

PHS | Hot rolling strip mill, Kraków | −700000 | 31.12.2002 | 31.3.2005 |

PHS | Cold rolling strip mill, Świętochłowice | −36000 | 31.12.2002 | 31.12.2005 |

L.W. | Narrow cold rolling strip mill | −30000 | 31.12.2002 | 31.12.2004 |

Łabędy | Medium sections mill | −90000 | 30.9.2003 | 30.9.2003 |

Łabędy | Universal plates mill | −35000 | 31.12.2003 | 31.12.2003 |

Bankowa | Medium sections mill | −60000 | 31.12.2004 | 31.12.2006 |

PHS | Wire rod mill, Sosnowiec | +200000 | 01.1.2005 | — |

PHS | Organic coated sheet line, Świętochłowice | +100000 | 01.1.2005 | — |

PHS | Cold rolling strip mills, Kraków (four-high reversing mill & five stand rolling mill) | −650000 | 31.12.2005 | 31.12.2006 |

PHS | Hot rolling sheet mill, Kraków | +400000 | 01.1.2006 | — |

| Net capacity changes | −1231000 | | |

[1] Capacity reductions should be permanent as defined in Commission Decision No 3010/91/ECSC (OJ L 286, 16.10.1991, p. 20).

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ANNEX 3

RESTRUCTURING BENCHMARKS AND MONITORING

1. Viability

Taking into account the special accounting rules applied by the Commission, each benefiting company shall achieve a minimum annual gross operating result of turnover (10 % for non-integrated steel undertakings, 13,5 % for integrated steel mills) and a minimum return of 1,5 % of turnover on own capital no later than 31 December 2006. This shall be verified in the independent evaluation carried out annually between 2003 and 2006, as provided for in paragraph 14 of the Protocol.

2. Productivity

An overall productivity based on consolidated cost and employment figures and direct employment figures comparable with the one attained by the EU steel industry shall be achieved gradually by 31 December 2006. This shall be verified in the independent evaluation carried out annually between 2003 and 2006, as provided for in paragraph 14 of the Protocol.

3. Cost reductions

Particular importance shall be attached to cost reductions as one of the key elements of viability. These shall be fully implemented, in accordance with the business plans of the benefiting companies. Cost reductions shall take place in the restructuring period with a view to reaching cost levels comparable to cost levels in the EU steel industry by the end of the restructuring period.

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ANNEX 4

INDICATIVE LIST OF INFORMATION REQUIREMENTS

1. Production and market effects

- monthly production and production forecast for the remaining restructuring period of crude steel, semi-finished and finished products by category as well as by product range,

- products sold and sales forecast for the remaining restructuring period, including volumes, prices and markets; breakdown by product range.

2. Investments

- details of investments realised,

- date of completion,

- the costs of the investment, the sources of finance and the sum of any related aid involved,

- the date of aid payment if any,

- details of investments planned.

3. Workforce reductions

- number and timing of job losses,

- evolution in employment at beneficiary companies (distinguishing between direct and indirect employment),

- breakdown of costs associated with employment and external service contracts.

4. Capacity (with regard to the entire steel sector in Poland)

- date or expected date of cessation of production of capacities expressed in MPP (MPP being the maximum possible annual production that can be obtained in ordinary working conditions) to be closed, and description of these,

- date (or expected date) of dismantling, as defined in Commission Decision No 3010/91/ECSC on the information to be furnished by steel undertakings about their investments [1], of the installation concerned and details of the dismantling,

- date (or expected date) of introduction of new capacities and description of these,

- evolution in total capacity in Poland of crude steel and finished products per category.

5. Cost

- breakdown of costs and their respective evolution in the past and in the future, in particular for workforce cost saving, energy consumption, raw material cost saving, accessories and external services reduction.

6. Financial performance

- evolution of selected key financial ratios to ensure progress is being made towards viability (the financial results and ratios must be provided in a way which allows comparisons with the company's financial restructuring plan and must include the Commission's viability test),

- level of financial charges,

- details and timing of aid granted,

- details and timing of the paying out of aid already granted,

- terms and conditions of any new loans (irrespective of source),

- audited financial statements.

7. Privatisation

- procedure used for privatisation,

- selling price, conditions applicable and treatment of existing liabilities,

- disposal of proceeds of sale,

- date of sale,

- financial position of company at the time of sale,

- value of the company/assets at the time of sale and method used for valuation.

8. Creation of a new company or new plants incorporating capacity extensions

- identity of each private and public sector participant,

- sources of their financing for the creation of the new company or new plants,

- terms and conditions of the private and the public shareholders' participation,

- management structure of the new company.

9. Any additional information deemed necessary for the independent evaluation provided for in paragraph 14 of the Protocol.

[1] OJ L 286, 16.10.1991, p. 20.

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